Greek Bonds Show Sign of Hope Before Decision on Bailout Payment

  • Nation’s 10-year bonds record best week since August
  • There’s political will to keep Greece ‘on board’: SEB

As Greece attempts to clear another hurdle on the road to passing the next bailout review, the bond market is already delivering a positive verdict.

The country’s 10-year sovereign bonds had their best week since August, pushing the yield on the securities to the lowest this year. More austerity is in the cards as the government drafts legislation on final actions needed to be passed before the next euro-area finance ministers’ meeting on May 24 to decide on the next bailout payment.

“Greece yields suggest there is confidence in the market that a solution can be found even in difficult situations because that’s what happened in the past,” said Jussi Hiljanen, head of macro and fixed-income research at SEB AB in Stockholm. “There seems to be a perception in the market, which I share, that there is political willingness to keep the country on board. That said, Greece is still a risk that investors cannot underestimate.”

The yield on 10-year Greek bonds fell 110 basis points, or 1.1 percentage point, this week to 7.42 percent as of the 5 p.m. close on Friday. The 3 percent security due in February 2026 climbed 6.025, or 60.25 euros per 1,000-euro ($1,129) face amount, to 74.195. The yield earlier touched 7.36 percent, the lowest for this year. That compares with more than 44 percent in March 2012.

Top Return

Greek bonds have returned 9.3 percent this year, beating all their euro-area peers with this week’s surge. Still, trading in Greek government securities remains scant. The turnover through the central bank’s electronic secondary securities market, or HDAT, totaled 2 million euros this month through May 6, according to data from the Bank of Greece. The volume across all maturities was 41 million euros last month. It peaked at 136 billion euros in September 2004.

Apart from Greece, the market will focus on the region’s inflation data due on May 18 and minutes of the European Central Bank’s April 21 meeting. Consumer prices fell 0.2 percent in April from a year ago compared with no change in March, according to the median of analyst forecasts compiled by Bloomberg.

“The minutes will probably give a feel for how long the ECB will be in a wait and see mode,” said Lyn Graham-Taylor, a senior rates strategist at Rabobank International in London. “I think they would not want to do more until they see the outcome of their measures.”

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